B
ondholders behind a CMBS loan on San Francisco's Financial District office building at 225 Bush Street are open to renegotiating terms with Kylli, the current landlord in default. This indicates that Kylli has some leverage in a workout scenario, despite being in default. The $350 million loan was taken out by Burlingame-based investor Kylli last month.

    Notes sent to CMBS bondholders suggest alternative workout scenarios, including selling the loan or taking "enforcement actions." Representatives of Kylli, a unit of China-based Genzon Investment Group, declined to comment on the matter. A potential debt payoff at a discount would be part of a larger trend in San Francisco's office market where landlords are using discounted deals to reduce overhead costs.

    This trend is driven by a record 37% vacancy rate in the city, according to CBRE. Many landlords are struggling with empty space and lower revenue due to this high vacancy rate. The 22-story building at 225 Bush Street is a prime example of this struggle, having dropped from nearly full occupancy before the pandemic to less than 50% as recently as September.

    Kylli acquired a majority stake in the property for $350 million in 2014 and added the remaining shares through a deal with minority partner Flynn Properties in 2019. The building's appraised value is $589 million, while current tenants LiveRamp and Stryder have signed leases totaling over 131,000 square feet until 2029.